An Empirical Study on Risk Management in Some Selected Conventional and Islamic Banks in Bangladesh: A Comparative Study

Öz

Özet: The main objective of the study is to compare risk management practices of the selected conventional and Islamic banks. A total number of 14 private banks (7 are of interest based and 7 are of interest free) have been selected for the study purpose. For the purpose of collection of data, a total number of fourteen respondents taking one from each bank have been chosen. The main findings of the study are: i) there exists variation as regards the level of awareness and concernedness in respect of various types of risks between conventional and Islamic banks, ii) there appears to be a gap between the conventional and Islamic banks in the practices of risk identification, iii) there also exists variation between the conventional and Islamic banks in understanding of risk and risk management practices, iv) the conventional banks attach more importance to the advanced techniques of risk management as well as risk mitigation. But the Islamic banks give more importance to the traditional practice mainly and v) a number of problems has been facing in risk management practices by the respondents. Of theses the major ones are: lack of qualified and experienced personnel, poor loan recovery and lack of market information as regards bank risk. Of the suggestions mentioned by the respondents for the removal of the problems; settings central MIS, moral persuasion of the borrowers, long term guideline of the central bank, modern loan monitoring system are the major suggestions.

Öz

Özet: The main objective of the study is to compare risk management practices of the selected conventional and Islamic banks. A total number of 14 private banks (7 are of interest based and 7 are of interest free) have been selected for the study purpose. For the purpose of collection of data, a total number of fourteen respondents taking one from each bank have been chosen. The main findings of the study are: i) there exists variation as regards the level of awareness and concernedness in respect of various types of risks between conventional and Islamic banks, ii) there appears to be a gap between the conventional and Islamic banks in the practices of risk identification, iii) there also exists variation between the conventional and Islamic banks in understanding of risk and risk management practices, iv) the conventional banks attach more importance to the advanced techniques of risk management as well as risk mitigation. But the Islamic banks give more importance to the traditional practice mainly and v) a number of problems has been facing in risk management practices by the respondents. Of theses the major ones are: lack of qualified and experienced personnel, poor loan recovery and lack of market information as regards bank risk. Of the suggestions mentioned by the respondents for the removal of the problems; settings central MIS, moral persuasion of the borrowers, long term guideline of the central bank, modern loan monitoring system are the major suggestions.

Anahtar Kelimeler

• Risk identification,Risk mitigation; Shariah’ Compliance; MIS; Liquid asset; Capital adequacy

Kaynakça

1. Al-Tamimi, H (2002) Risk managementpractices: an empiricalanalysis of the UAE commercialbanks, Finance India, Vol. 16 No. 3, 1045-57.
2. Anderson, RA, Sweeney, DJ & Williams, TA (1990), Statisticsfor Business andEconomics, West Publishing Company, St. Paul, MN. Basel Committee on
3. BankingSupervision(1999),
4. Principlesforthemanagement of credit risk.consultativepaperissuedbythe Basel Committee on BankingSupervision, issuedforcommentby 30 November, p. 3. Carey, A (2001), Effective risk management in financialinstitutions: theTurnbullapproach, BalanceSheet, Vol. 9 No. 3, 7-24
5. Devellis, RF (1991), Scaledevelopment: theoryandapplication, AppliedResearchMethods Service, Vol. 26, Sage
6. Publications, Newbury Park, CA. EmiratesBanksAssociations( 2004). Financial position of commercialbanks in the UAE, EmiratesBanksAssociations, Abu Dhabi. Hahm, JH (2004). Interest rate andexchange rate exposures of bankinginstitutions in pre- crisisKorea.,AppliedEconomics, Vol. 36 No. 13, 1409-19.
7. Islamic Financial Service Board (2005), IFSB-1: GuidingPrinciples of Risk Management forInstitutions
8. (otherthanInsuranceInstitutions) offeringonlyIslamic Financial Services (IIFS). Kuala Lumpur, Malaysia: Islamic Financial Service Board. Islamic Financial Service Board (2008), Technical Note on Issues in StrengtheningLiquidity Management of

9. InstitutionsOfferingIslamic Financial Services: The Development of Islamic Money Market. Kuala Lumpur, Malaysia: Islamic Financial Service Board. Khambata, D &Bagdi, RR (2003). Off-balance-sheetcredit risk of the top 20 Japanesebanks.Journal of International
10. BankingRegulation, Vol. 5 No. 1, 57-71. Khan, T &Ahmed, H 2001, Risk Management: An Analysis of Issues in Islamic Financial Industry. OccasionalPaper
11. No. 5, IslamicResearchand Training Institute (IRTI), Islamic Development Bank, Jeddah. Linbo FL (2004), Efficiencyversus risk in largedomestic US, Managerial Finance,Vol. 30 No. 9, 1-19.
12. Niinima¨ki, J (2004). Theeffects of competition on banks’ risk taking”, Journal of Economics, Vol. 81 No. 3,. 199- 2
13. Nunnally, CJ (1978), PsychometricTheory, McGraw-Hill, New York, NY.
14. Oldfield, G.S. andSantomero, A.M. (1997).Risk management in financialinstitutions, Sloan Management Review, Vol. 39 No. 1, 33-46.
15. Salas, V &Saurina, J (2002). Credit risk in twoinstitutionalregimes: Spanish commercialandsavingsbanks, TheJournal of Financial Services Research, Vol. 22 No. 3, 203-16.
16. Selltiz, C, Wrightsman, LS &Cook, W (1976)ResearchMethods in SocialRelations, Holt, Rinehartand Winston, New York, NY. Wang, AT &Sheng-Yung, Y (2004). Foreignexchange risk, worlddiversificationandTaiwaneseADRs,
17. AppliedEconomicsLetters, Vol. 11 No. 12, 755-8. Wetmore, JL (2004), Panel data, liquidity risk, andincreasingloans-to-cordepositsratio of largecommercial bank holding companies”, American Business Review, Vol. 22 No. 2, 99-107.